macquire hybrid securities lured by yield july2012

7/28/2019 Macquire Hybrid Securities Lured by Yield July2012

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MACQUARIE INVESTMENT MANAGEMENT

Hybrid Securities:Lured by Yield

Investment Perspectives - Issue No. 6

Adviser and wholesale investor use only - not to be distributed to retail investors


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About Macquarie Investment

ManagementMacquarie Investment Management offers securities

investment management expertise across a range of

asset classes including xed interest, listed equities

(domestic and international) and infrastructure securities.

It delivers a full-service offering to both institutional and

retail clients in Australia and the US, with selective

offerings in other regions. Macquarie Investment

Management is part of the Macquarie Group.

MIM FIC capabilities

Macquarie Investment Management Fixed Income andCurrency (MIM FIC) team of Macquarie Funds Group has

over $A30 billion under management across cash, credit,

xed income and currency.

Macquarie began managing xed income assets in 1980,

launching Australias rst cash management trust and

over time has grown to manage the full spectrum of xed

income investment styles. With teams based in London,

Sydney and Philadelphia we have substantial reach

and capability, offering global xed income investment

solutions.

We have signicant and experienced resources devotedto security analysis, portfolio management, xed

income modelling, risk management and research. We

are able to provide a range of xed interest solutions

from index targeting and enhanced portfolios to more

opportunistic strategies across the risk spectrum. We

manage investments for a diverse set of clients including

pension funds, insurance companies, government bodies,

managed account platforms, corporate treasuries, master

trusts and individuals.


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Executive Summary

Hybrid securities are complex capital instruments issued by companies to diversify their funding base and manage

their cost of capital. These securities possess characteristics of both debt and equity, and incorporate various featuresthat may make them more debt-like or more equity-like. This in turn impacts the performance of the income and

capital return components of the securities.

Hybrid securities have been promoted as investments that offer stable and defensive income streams. However,

unlike senior debt securities, the income on hybrids can be deferrable and hybrid instruments rank below senior debt

securities in the capital structure which makes them riskier investments. During the recent downturn, the income

yield provided by hybrid securities failed to offset the substantial decline in capital values, highlighting the downside

correlation of hybrid securities to equities during difcult times. This correlation demonstrates that hybrid securities are

not a substitute for xed income as the income ows are less certain whilst the principal value has been shown to be

volatile, akin to holding equity. Our analysis shows that hybrids perform like debt when equity markets perform well,

and perform like equity when equity markets perform poorly.

In this paper we explore some of the key features associated with hybrid instruments and identify risks associated

with investing in these securities. We compare the recent returns of hybrid securities against other instruments along

the capital structure, and look at the correlation between these asset classes. We also outline our investment process

which involves considering credit risk at the issuer level as well as analysing the features of a hybrid instrument against

safer senior debt and subordinated debt investments, to assess their value-add to a xed income portfolio.

Hybrids overview - what are hybrids?

Hybrid securities are instruments that feature characteristics of both debt and equity capital, and are generally complexand highly structured instruments. Hybrid security is the broad term used to describe an instrument that typically ranks

behind senior debt but ahead of equity, however they can incorporate numerous features that may make them more debt

like or more equity like. The characteristics of each hybrid security are important, as they determine the extent to which

the instrument will behave like debt or equity. Table 1 outlines the key characteristics of securities along the debt-to-equity

spectrum.

Table 1 - Summary of key terms of instruments along the debt-hybrid-equity spectrum

EquityHybrid

Shares

Residual claim

Dividends

Perpetual

Senior Debt

Unsubordinated

Regular

coupons

Fixed maturity

Upper Tier II

Deeplysubordinated

Deferrable but

cumulative

coupons

Fixed maturity

or perpetual

Hybrid Tier I

Deeplysubordinated

Deferrable and

noncumulative

coupons

Perpetual

Lower Tier II

Subordinated

Regular

coupons

Fixed maturity

Debt


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Diagram 1: Rating comparison between Hybrid Universe (LHS) and UBS Composite Credit Index (RHS)

Source: Macquarie investment Management, UBS

Hybrid marketBanks and insurance companies have traditionally

been issuers of hybrid capital, as it helps to balance the

conicting objectives of regulators that want strongly

capitalised nancial institutions, and shareholders that

are pressuring for improved returns. Hybrid securities

saw increasingly robust demand during 2005-2007 as

income investors, faced with record low credit spreads,

disregarded the downside potential of investing in riskier

securities in the chase for yield. In addition to the strong

investor demand for hybrid securities, issuers were

encouraged to structure hybrid securities to achieve:

Tax deductibility having tax authorities treat the

instrument as debt-like allows the payments to be tax

deductible at their marginal tax rate, which reduces

overall funding costs

Rating agency equity credit having the rating agencies

treat the instruments as equity-like is supportive of the

issuers credit ratings and allows them to reduce the

need to raise equity

Non dilution issuing hybrid securities that are non-dilutive is positive for earnings per share, and equity

prices

Accordingly, non-nancial corporates increasingly began to

issue hybrids alongside banks and insurers. Hybrids also

increased in complexity as issuers sought to achieve tax

efciency, which saw a number of stapled securities issued

into the Australian market, whereby the hybrid comprised

a preference share and an unsecured note in order to

achieve tax deductibility.

Although there is no hybrid market index in Australia, we

have identied 42 listed hybrid instruments with a market

value of approximately $19.8b. The majority of these hybridinstruments by value are rated A by S&P (Diagram 1),

reecting the large percentage of issuance by Australian

banks. A further 30% of instruments are unrated. When

compared against the credit quality of the UBS Composite

Credit Index, of which only 15% is rated below AA, it

is evident that investing in hybrid instruments exposes

investors to higher credit risk. Furthermore, based on the

issuers business and nancial proles, we estimate that

13% of the hybrid universe has a sub-investment grade

credit rating prole whilst the UBS Composite Credit Index

does not have any sub-investment grade debt issuers.

BBB

3%A

12%

AA

24%

AAA

61%

A

51%

BBB

16%

BB

2%

B

1%

Unrated

30%


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Over one quarter of issuers in the hybrid universe are corporates (Diagram 2), compared to only 9% of the UBS Composite

Credit Index. The lower risk of the UBS Composite Credit Index is further demonstrated with 55% of the index comprised

of supranational entities, which are highly rated and largely risk free issuers.

Diagram 2: Issuer comparison between Hybrid Universe (LHS) and UBS Composite Credit Index (RHS)

Corporates

26%

Banks & Financials

74%

Corporates

9%

Supras

55%

Banks & Financials

36%

Source: Macquarie Investment Management, UBS

Looking specically at the corporate segment of the hybrid universe (Diagram 3), there are 20 issues totalling $5.2b inthe market, with 32% issued by large scale borrowers such as Woolworths and Sydney Airport seeking further investor

diversication. 41% are issued by companies that have a sizeable private shareholder, which can constrain the issuers

nancial exibility due to the potential inability to raise new equity as the private shareholder will face dilution if they cannot

raise funds to subscribe to new shares. Of the remainder 27% of corporate hybrid issuers, more than half have, or would

likely have, a sub-investment grade rating prole, which suggests that their access to other forms of debt capital are

limited. It is also worth noting that two of Australias high prole corporate defaults had issued hybrid securities ABC

Learning and Babcock & Brown.

Diagram 3: Corporate issuers of the Hybrid Universe and other issuers based on credit quality

Large scale borrowers

seeking diversification32%

Other

27%

Sizeable privateownership, limiteddesire for dilution

41%

Investment grade

45%

Subinvestment grade

55%

Source: Macquarie Investment Management, UBS


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wider than the original margins on some of the hybrids.

This serves as a constraint on a hybrid securitys price

appreciation because if an investor has the choice

between two instruments paying a similar yield, but one

is senior and the other a deeply subordinated hybrid, the

senior debt will price closer to or at a premium to par

whilst the hybrid security will price at a discount to par.

Diagram 4: Performance of NAB equity, hybrid capital,

senior debt and subordinated debt

50

60

70

80

90

100

110

120

130

140

150

160Hybrid performancecomparable to debt

Hybrid performancecomparable to equity

Hybrid Equity Senior Debt Sub Debt

Dec-

05

Mar-

06

Jun-

06

Sep-

06

Dec-

06

Mar-

07

Jun-

07

Sep-

07

Dec-

07

Mar-

08

Jun-

08

Sep-

08

Dec-

08

Mar-

09

Jun-

09

Sep-

09

Dec-

09

Mar-

10

Source: Bloomberg, Markit, Company lings

1 National Income Securi ties originally issued in 1999 paying a margin 125 basis points over the Bank Bill Swap Rate with a perpetual maturit y

Hybrid performanceHybrids have often been sold to investors on the basis

of providing a higher yield and stable income ow.

Although this is generally true, it fails to consider the

other component of an investments total return the

capital return. Comparing the total return performance for

equity, hybrids, subordinated debt and senior debt issued

by the Big 4 Australian banks along with Macquarie

and Suncorp, hybrid securities perform like debt when

risk assets (i.e. equities) perform well, with their higher

coupon rates providing income returns that modestly

outperformed senior and subordinated debt, whilst

maintaining a relatively stable capital value. In the recent

downturn which affected all risk-based assets, capital

values of hybrid securities fell on a sustained basis to a

similar degree to equities whilst the performance of both

senior and subordinated debt only suffered relatively

negligible declines which were offset by the income yield.

Using National Australia Bank as an example (Diagram 4),

the performance of its equity, hybrid capital1, senior debt

and subordinated debt, over the past three and a half

years can be broken into two distinct periods: In the 26 months from December 2005 to February

2008, the hybrids performance was comparable to

debt. Throughout most of this period, total returns

were driven by income returns, which saw the higher

yielding hybrid instrument modestly outperform

subordinated debt, which in turn outperformed lower

yielding senior debt.

In the subsequent 27 months to May 2010, the hybrid

performed similar to equity, with its total return driven

by signicant losses in its capital value. Although the

subsequent rebound in capital values has driven the

performance of the hybrid, it is yet to catch up to theperformance returns of senior and subordinated debt.

Furthermore, it is important to remember that whilst

equity theoretically has unlimited upside, hybrid upside

is likely to be capped as its capital value approaches

100 cents in the dollar unless there is an equity

conversion feature or its yield is signicantly higher than

the base rate. We note that over the past two years,

some of the banks have issued senior debt at levels


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We also constructed an index2 in order to assess the

relative performance of equity, hybrid capital, senior debt

and subordinated debt over the past four and a half years

for the 6 largest banks in Australia. Looking at our index

(Diagram 5), similar observations can be drawn to that of

NAB. Despite the rally in hybrid capital values since early

2009, hybrid capital has underperformed senior debt by

18% since December 2005 (Diagram 6).

Diagram 5: Index performance of equity, hybrid capital,

senior debt and subordinated debt

Hybrid performancecomparable to debt


Dec-

05

Mar-

06

Jun-

06

Sep-

06

Dec-

06

Mar-

07

Jun-

07

Sep-

07

Dec-

07

Mar-

08

Jun-

08

Sep-

08

Dec-

08

Mar-

09

Jun-

09

Sep-

09

Dec-

09

Mar-

10

50

60

70

80

90

100

110

120

130

140

150

Hybrid Equity Senior Debt Sub Debt


Diagram 6: Out-performance of hybrid capital

compared with senior debt

50%

-45%

-40%

-35%

-30%

-25%

-20%

-10%

-15%

-5%

0%

5% Hybrid performancecomparable to debt


Dec-

05

Mar-

06

Jun-

06

Sep-

06

Dec-

06

Mar-

07

Jun-

07

Sep-

07

Dec-

07

Mar-

08

Jun-

08

Sep-

08

Dec-

08

Mar-

09

Jun-

09

Sep-

09

Dec-

09

Mar-

10


It is important to note that the hybrids that we have analysed

were issued by highly rated banks which have maintained

stable earnings performance throughout the global

economic downturn. These banks are also backed by very

strong capital positions which are closely monitored by the

local prudential regulator. Hybrid instruments tied to issuers

with weaker credit proles would have further doubts raised

over their ability to maintain coupon payments, whilst their

capital values would be affected by low recovery rates in the

event of default.

Correlation analysisThe up-market period previously identied from December

2005 to February 2008 shows a strong correlation between

hybrid capital, and senior and subordinated debt. Hybrid

capital also had a strong correlation against equities,

although to a lesser extent. The subsequent period from

February 2008 to May 2010 shows that the correlation

between hybrid capital and equities remained strong

at 81.9%, whilst the correlation against senior debt and

subordinate debt declined substantially to 19.1% and

28.6% respectively. This correlation demonstrates that

hybrid securities should not be substituted for xed incomeas the income ows are less certain whilst the capital value

is very volatile. Interestingly, from December 2005 to May

2010, senior debt and subordinated debt were negatively

correlated with both hybrid securities and equity. Diagram

7 and Table 2 illustrate the correlation analysis.

Diagram 7: Correlation analysis of hybrid capital index

against other instruments, broken down across two

distinct periods

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Equity Senior Debt Subordinated Debt

F rom Dec-2005 to Feb-2008 From Feb-2008 to May-2010

Source: Macquarie Investment Management

2 Refer to the appendix for notes on index construction


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Hybrids as part of a portfolioFrom a broad portfolio perspective, hybrid securities are

not a substitute for xed income as the income streams

are less assured whilst the value of the principal balance

has been shown to be volatile, akin to holding equity. For

a hybrid instrument that features a greater proportion of

equity-like features, investors are exposed to higher risks in

the form of interest payments (coupons could be deferred,

and possibly not accumulate) and principal repayment (the

principal repayment date could be deferred, or in the event

of a default, repayment of principal is subject to there being

any residual value after other higher ranking creditors have

been fully repaid). This is exacerbated if held alongside apredominantly equity-weighted portfolio given the positive

correlation between equities and hybrids during periods of

weak equity markets.

Our philosophyUnderpinning our approach to investing in hybrid

instruments is our core investment philosophy for credit

investing, whereby we focus on credit loss avoidance

rather than chasing yield. Our philosophy is to detect and

avoid deteriorating credits through robust and continuous

credit analysis. We aim to avoid losers, not chase winners,

because the downside risk from holding a deteriorating

credit overwhelmingly outweighs the small benet from

holding an improving one.

Analysis of the underlying credit risk of each hybrid forms

the basis of our investment philosophy. Put simply, if wedont believe that the issuer is creditworthy, we wont

invest anywhere along its capital structure. Assuming the

issuer is creditworthy, we only invest in hybrid instruments

if we believe that we are being fully compensated for

taking higher risks. We also undertake relative value

analysis whereby the risk-reward framework of a hybrid

security is compared against senior and subordinated

debt securities. These measures must be favourable for

hybrid instruments before we would look to invest in them.

Hybrid Senior Sub Equity Hybrid Senior Sub Equity

Hybrid Hybrid

Senior Senior

Sub Sub

Equity Equity

Hybrid

Senior

Sub

Equity

Hybrid Senior Sub Equity

From Dec-2005 to Feb-2008 From Feb-2008 to May-2010

From Dec-2005 to May-2010

100.0% 98.4% 98.8% 83.8%

100.0%

100.0% -23.0% -16.1% 85.8%

100.0 % 99.4% -15.8%

10 0.0 % -7.2 %

100.0%

100.0% 99.7% 77.3%

100.0 % 80.8 %

100.0% 19.1% 28.6% 81.9%

100.0% 99.3% 60.8%

100.0% 68.1%

100.0%

Table 2: Correlation analysis

Source: Macquarie Investment Management


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Appendix

Introduction to capital structure

Organisations can fund their assets and operations throughtwo main funding sources: debt or equity (Diagram 8).Debt nance is cheaper, as investors require lower rates ofreturn due to the lower risks of investing in debt comparedwith equity. Debt is also tax deductible. A company thatnances its operations with as much debt as possible canin theory maximise returns to shareholders. However, debt

introduces nancial risks to the organisation, and too muchdebt can result in bankruptcy. Therefore, organisationsneed to balance their desire to maximise shareholder

returns whilst minimising the negative implications ofhaving too much debt. Hybrid capital, in theory can helpachieve these conicting objectives by minimising dilution(by not issuing shares), strengthening the balance sheet(by structuring an instrument that the rating agencies viewas equity-like) and lowering the cost of funding (throughtax deductible coupon payments). Although the theory

shows that hybrid instruments work for issuers, recentperformance suggests that they do not work for xedincome investors.

Diagram 8: Comparison of capital structure with and

without hybrid capital

DebtDebt

Hybrid

Equity

Equity

Creditors(working capital)

Creditors(working capital)

Debtors

Inventory

Fixed Assets

Assets Liabilities / Equity Liabilities / Equity

(with hybrid capital)

Index methodology

In order to compare the performance across equity,

hybrid instruments, subordinated debt and senior debt,

we constructed equally weighted indices that comprised

instruments issued by highly rated borrowers with

comparable credit proles.

These four indices were calculated to ensure that coupon

or dividend payments do not generate a discontinuity in the

time series of index values, with coupons and dividends

reinvested in the universe of securities comprising theindices. In our coverage universe, indices were rebalanced

when a new hybrid was issued. The index divisor (n, as

shown in Table 3) is increased by the number of new

issues. If an issuer had a hybrid instrument in the hybrid

index, then the respective instrument was included in the

equity, subordinated debt and senior debt indices. For

example, CBA issued a hybrid instrument in April 2006.

CBA was excluded from all indices until this date.

Table 3: Hybrid Index valuation formula

In the absence of any new issue and maturities, the hybridindex at any time may be written as:

)1(*)( = tIndextreturnIndex

= +

+=

n

i titi

tti

CP

CP

ntreturn

1 1,1,

,,

)(

)(1)(

Where

Pi,t is the gross price per $100 of face value for the ith

hybrid security at time t.

Ci,t is the sum of all the coupons payment afterissuance per $100 face value plus reinvestment

gain (loss) of these coupons of the ith hybrid

security until the date t.

n is the number of hybrid securities in the index

portfolio at time t.

All hybrid securities will be consistently valued CUM for

the purpose of valuation

i


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Our senior and subordinate debt indices were constructed

using 5 year CDS spreads, which are highly reective of

medium term credit risks and highly liquid when compared

to holding physical securities (Table 4).

Coupon rates were based on the 5 year CDS spread on the

date of inclusion in the index plus the quarterly benchmark

rate (3 month BBSW). The gross price was calculated daily

based upon actual market movements in CDS spreads and

BBSW.

Table 4: Senior/Subordinated Debt Replication Formula

)1(*)( = tIndextreturnIndexDebtSenior

Where

B 3 months BBSW at coupon payment date.

IM Interest Margin (CDS spread at issuance as apercentage).

D the number of days in the current interest period.

TM Trading Margin (CDS spread at time t as a percentage).

K coupon frequency.

R 3 months BBSW at time t.

F the number of days from the beginning of thecurrent accrual period to the next interestpayment date.

A = (1 V) / i

V = 1 / (1+i)

i = (BBSW + TM)/ K

All instruments will be consistently valued CUM for the purpose

of valuation.

= +

+=

n

i titi

titi

CP

CP

ntreturn

1 1,1,

,,

)(

)(1)(

365

)(1

1001365/)(

,FTMR

Ak

TMIMDIMB

P

n

ti+

+

+

++

=

n

The hybrid instruments used for our index construction:

Table 5: Hybrid instruments used in our index

Issuer Instrument

S&P

Rating

Issuance

Date

Coupon

Spread

ANZ Convertible

Preference

Shares (ANZPB)

A+ 30 Sep

2008

2.50%

CBA PERLS III(PCAPA)

A+ 7 Apr2006

1.05%

MQG Macquarie

Income

Securities

(MBLHB)

BBB+ 25 Nov

1999

1.70%

NAB National Income

Securities

(NABHA)

A 8 Jul 1999 1.25%

SUN Floating Rate

Capital Notes(SUNHB)

A- 17 Dec

1998

0.75%

WBC Trust Preferred

Securities

(WCTPA)

A+ 21 Jun

2006

1.00%


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Table 6 provides an overview of some of the common characteristics observed in hybrid instruments and their ranking on a

debt-to-equity scale.

Table 6: Comparison of characteristics between hybrid instruments with debt and equity

Cumulative interest payments

Mandatory or optional conversion

Convertability

Deeply subordinated, both

legally and structurally (issued

by company further away fromoperating cashflows)

Subordination

Optional or contractually deferrable

No conversion

Unsubordinated and issued by

or guaranteed by operating companies

Non deferrable interest


Fixed maturity date

Deferability of interest payments

Noncumulative dividend payments

No maturity date perpetual

Maturity Date

Neither a debt or equitylike feature, however the pricing of the security can differ materially

depending on whether the instrument is priced to the option date or its legal maturity date

Investor Put / Investor Call

HybridDebt Equity


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Glossary

BBSW

Bank Bill Reference Rate. Typically used as the risk free

base rate in the pricing of many securities, including debt

and hybrid instruments

Capital return

The portion of an investment return derived from changes

in the capital value of the investment. This can be positive

or negative, and may not be realised until the asset is sold.

Credit Default Swap (CDS)

A bilateral agreement designed to transfer credit risk

between two parties. Put simply, it may be likened to an

insurance contract where in exchange for a premium,

the protection buyer transfers the risk of default to the

protection seller. CDSs are commonly used by a wide

range of nancial institutions as a means of hedging

and diversifying credit risks. For example, selling $1m of

protection on BHP Billiton at 0.50% presents the same risk/

rewards as buying a $1m BHP Billiton oating rate note that

pays a margin of 0.50% of the same maturity

Convertibility

Hybrid instruments may be convertible into shares of the

issuer. Conversion may be mandatory, ie there is no option

of getting repaid in cash, and may depend on certain

triggers being satised.


If deferred, certain instruments may carry the requirement

for the issuer to pay interest that has been deferred at a

later date i.e. interest payments are cumulative.

Deferability of interest

In a similar manner that a company decides if it wishes

to pay a dividend to equity holders, some hybrids give

companies the ability to defer paying interest on securities.

The interest on senior debt securities, on the other hand,

cannot be deferred without triggering an event of default.

Income return

The portion of an investment return derived from coupons

or dividends. This will be greater than or equal to zero.

Investor put

This is not a very common feature of hybrids but certain

instruments carry the option for the investor to sell the

hybrid instrument back to the issuer at a predetermined

price and date. This feature is not debt-like, nor equity-like.

Issuer callThis feature is similar to an investor put but in an issuer call

the issuer has the option to buy back the instrument from

the investor at a predetermined price and date.

Maturity date

Generally the maturity on hybrids can range from short

dated (up to 3 years) to perpetual maturities similar to that

on equities.

Stapled security

An instrument that comprises two or more underlying

securities, neither of which can be traded separately.

Some hybrid instruments comprise a preference share

and an unsecured note, which aids in their coupons being

deductible for tax purposes.

Subordination

Hybrid instruments rank behind senior debt and other

creditors of the issuer but are senior to ordinary shares

of the issuer. Subordination can include both legal and

structural subordination, with some hybrid instruments

subject to both.

Tier 1 Capital

Comprises the highest quality capital of a bank orinsurers balance sheet. Tier 1 Capital provides a

permanent capital base, is freely available to absorb

losses and ranks behind senior creditors in a liquidation

scenario. It typically comprises shareholders equity,

reserves and retained earnings.


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About the Authors

Adrian David is a Senior Credit Analystwithin Macquarie's FICCAM team inSydney. He undertakes fundamental creditanalysis on domestic and international

companies operating across a range

of nancial, industrial and infrastructuresectors. Adrian identies and quantiespotential issues that could impact the

credit quality of individual companies and

maintains an active investment view on allissuers across his portfolio of credits.

Prior to joining Macquarie, Adrian spent3 years with HSBC's Rating & CapitalAdvisory team in London. In this role,Adrian advised corporate debt issuers

across the rating spectrum on their credit

rating and funding requirements and

executed transactions across Europe,the Middle East, Asia and the Americas.Prior to HSBC, Adrian spent 4 years withStandard & Poor's in Melbourne andLondon as a corporate credit analyst.

Adrian is a CFA Charterholder and holds

a Bachelor of Business in Economics

and Finance with distinction from theRoyal Melbourne Institute of Technology

University

Asmita Kulkarni is a credit analyst withinMacquaries FICCAM team in Sydney.

Asmitas credit research is focused on

analysis of Australian and European

nancial institutions and securitisedtransactions including RMBS, CMBS andABS investments. Asmita actively monitorsall transactions in her portfolio with aspecic focus on identifying and avoidingdeteriorating credits.

Prior to joining the Credit team Asmitaworked in the FICCAM QuantitativeResearch team where she was involved inanalysis of new investment ideas and thedevelopment of analytical tools. Asmita

played an integral role in developing our

PCA Model and the Safety Factor Model

which is used in our analysis of mortgage-backed securities.

Asmita joined Macquarie as a graduateof the University of NSW, where shecompleted a BComm with Distinction,majoring in Finance and Actuarialstudies. Asmita is a CFA Charterholder

and an Associate of the Institute of

Acturies Australia.

ADRIAN DAVID

B.BUS, CFASenior credit analyst

Macquarie Investment

Management

ASMITA KULKARNI

B.COM, AIAA, CFACredit Analyst

Macquarie Investment

Management

The authors would like to extend a special thanks to Gary Ding for his research assistance with this publication.


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Important Notice

This document has been prepared in August 2010 by Macquarie Investment Management Limited (ABN 66 002 867 003, AFSL 237492) (MIML)

solely for general informational purposes. The information in this document is not, and should not be construed as, an advertisement, offer

or recommendation to participate in any investment strategy or take any other action. This document has been prepared without taking into

account any persons objectives, nancial situation or needs. Readers should not construe the contents of this document as investment or other

advice.

Future results are impossible to predict. This document contains conclusions, opinions, estimates and other forward-looking statements which

are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from

those reected or contemplated in such forward looking statements. Forward-looking statements are subject to change without notice.

No representation or warranty, express or implied, is made as to the suitability, accuracy or completeness of the information, opinions and

conclusions contained in this document. In preparing this document, reliance has been placed, without independent verication, on the accuracy

and completeness of all information available from external sources. To the maximum extent permitted by law, no member of the MacquarieGroup nor its directors, employees or agents accept any liability for any loss arising from the use of this document, its contents or otherwise

arising in connection with it.

MIML is not an author ised deposit-taking institution for the purposes of the Banking Act (Commonwealth of Australia) 1959, and MIML's

obligations do not represent deposits or other liabilities of Macquarie Bank Limited. Macquarie Bank Limited does not guarantee or otherwise

provide assurance in respect of the obligations of MIML.


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Client Service 1800 814 523

[email protected]

macquarie.com.au/mim

Macquarie Investment Management Limited

ABN 66 002 867 003

A Member of the Macquarie Group of Companies

Macquarie Investment Management

No. 1 Martin Place

SYDNEY NSW 2000

PO Box R1723

Royal Exchange

New South Wales 1225

CONTACT

macquire hybrid securities lured by yield july2012

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